There must be thousands of blogs, websites and podcasts out there that offer to teach you how to select securities for your portfolio. Many are legitimate but others are not. One interesting point is that many tend to focus on five key facts. Of course, there are infinite ways to explain and re-explain the same facts, and that’s pretty much what all the blogs, books, videos, podcasts, newsletters and stock-picking websites do.
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The unfortunate part is that many purveyors of this type of information charge you either a one-time fee for their secrets, or ask you to sign up for a monthly subscription. Save yourself the trouble and cost by reading about the methods below. It’s best to do further research on your own, but the basics of the five strategies are outlined for your general use.
Use Screening Methods
Have your own set of screening methods for selecting your favorite companies. Many traders use criteria like earnings per share, price history, capitalization, and other key parameters about the behavior of the company through the years. There are plenty of methods you can use, so decide what you believe to be some of the key factors for the securities you want in your portfolio. For example, it’s pretty common to screen out all companies that aren’t blue chips and have recent price volatility above a certain measured amount. The goal is to come up with a standard system you can use to rule in or rule out individual securities.
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According to experts, earnings per share is one of the most important numbers in the pantheon of metrics used to select stocks. Most of the brokerage sites list every organization’s EPS in a prominent location. Or, you can calculate it by dividing earnings by the number of outstanding shares. EPS is a transparent way to determine what the price of a given security should be. If the actual price is much higher, then the company’s stock is said to be overpriced.
Don’t Forget to Include Under Performing Companies
It’s easy to get caught up in only looking for winners, shares of companies that are doing well. But you can earn a solid profit by seeking out under performers as well. Short selling is a technique you can learn about by watching this video that lets you commit to future delivery of shares at a fixed price. So, if the price goes down after you short sell, you earn a profit based on the price decrease times however many shares you sold in the short transaction.
Pick Mid-Price Stocks of Well-Known Companies
Especially for beginners, it’s wise to choose candidates for your portfolio from mid-priced issues of established firms. That means avoiding high and low-end buys and sticking to companies that are well known in their sectors.
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Follow Basic Principles
CANSLIM is an ingenious selection strategy that is more than 60 years old. It helps investors identify growth companies using both technical and fundamental analysis. Its broad-based approach means that it rules out lots of candidates but helps you bring worthy shares into your portfolio. The letters of the acronym stand for aspects of a particular issue you should look at:
- Current quarterly earnings
- Annual earnings growth
- New product or service
- Supply and demand
- Leader or laggard
- Institutional sponsorship
- Market direction